Base or Neckline established, near term overbought
After a sharp move up it’s normal for markets to consolidate as the oscillators in the near term, like the RSI and Stochastic, get extremely overbought. It’s desirable when this consolidation can unwind the oscillators without any serious price erosion. This is the type of action we’re experiencing in the major indexes, and we can expect to see more of it over the next couple of days. It is possible that we’ll see the 20 and 50 day moving averages revisited, but it is unlikely that those levels will be seriously tested. All the better and a sign of a healthy market positioning for its next advance.
As you well know, AAPL and other leaders of their respective sectors are normally leading the charge during sharp moves. And they did so with the break through of the 20/50 day EMAs, as the secondary companies kind of got pulled along. Now that the leaders have taken the hill, money is rotating towards the laggers, like a mountain climber establishing a platform and pulling the rest of the climbing team up. So overall you have to view this as a positive, as it is important that strong moves up have full participation across the breadth of markets.
So if the climber analogy holds you would expect the next move up to be led by the leaders once again, right? Well it doesn’t always work like that, sometimes the leader needs an extended break after carrying all the weight of the rest. AAPL, GOOG, RIMM and AMZN all are looking pretty tired. I expect them to take it easy, perhaps even sell off some more as the rotation continues. You can see this rotation in the volume charts of Apple, it’s like a controlled blood letting, we just have to pay close attention that these leaders don’t lose too much blood, otherwise they’ll become vulnerable to the hedgies to do with as they please.
So watch AAPL very closely over the next few days, it has a lot of long term downward pressure on it, so we need to be diligent and alert. Should AAPL slip into a bad place, it may be difficult to hold on, and it dipped its toes into that bad place yesterday but managed to recover… barely. AAPL finished the day at 200.42 down for the second day in a row -1.25 (-0.62%).
here may be continues selling for the next couple of days to work off those overbought conditions on the daily charts, perhaps bolstering the base that has been forming over the past few months. The Nasdaq will find support at the 2200-2215 range and the S&P 500 in a range of 1084 to 1100. It’s not too difficult a call to say that any moves towards this support should be bought up, because as you know by now that’s the standard operating procedure of the Swing Trader.
Tagged as: AAPL, COMPQ, Overbought, SPX
